Rupiah Politics.

It may lose something in translation, but Indonesian politics--not normally a rich source of humor--has finally spawned its first joke. No matter which of the country's 141 warring parties a politician belongs to, goes the gag, he or she will always end up voting for the KKN. In a land plagued by three-letter political infighting--parties include the PDI, MPR, etc., etc., etc.--the idea that Indonesian politicians should all rally to a common cause stretches credibility. In fact, KKN stand for korupsi, kolusi, and nepotisme: that is to say, corruption, collusion, and nepotism. Come to think of it, the joke may not be so funny.

Certainly, Indonesia's two most recent ex-presidents, Soeharto and Habibie, do not appear to be amused. Habibie, who decided not to stand in the country's October presidential elections, did so because a local newspaper churlishly pointed out that his campaign would be payrolled by the $70 million proceeds of an inter-bank loan scam. As to nepotism, Soeharto's son (known to a dwindling number of friends as "Tommy") was recently exposed as running up Indonesia's second largest bad debt, in the form of Timor Putra Nasional, the country's ailing car maker. TPN's $600 million worth of liabilities outstrip those of Habibie's aeroplane building company, PT IPTN: an even more improbable manifestation of the late-'80s high-tech investment policy dreamt up by Indonesia's FDI promotion agency, the BPIS. (Proprietor: BJ Habibie.)

It all seems a long way from the heady days of 10 years ago, when U.S. and European investors were beating a path to the BPIS's door, chivvied along by talk of a Pacific Rim technology corridor and promises of massive FDI handouts. As Habibie hoped, Indonesia's high-tech manufacturing sector took off like a rocket. In 1988, manufactured goods accounted for 15 percent of export earnings. By 1998, that figure stood at 71 percent.

But things were not quite as they seemed. For one thing, the apparently rapid growth in high-tech sales was exaggerated by the fact that Indonesia's other export earners were shrinking even more meteorically. Most notable of these was the country's oil industry, which the technology-mad Soeharto government spent 10 years carefully neglecting. In 1988, petroleum accounted for 82 percent of Indonesian exports; this year, it is likely to weigh in at around 16 percent. Of the country's 60 known oil-bearing basins, fewer than 40 have been explored to date. Of the 70 billion barrels, which industry sources say might have been pumped out of these, fewer than 500 million were extracted in 1998.

And it wasn't just a numbers game. There being no downstream supply base for high-tech manufacturing in Indonesia (and lowly things like widgets and circuit boards apparently not appealing to Habibie's sense of national amour propre), BPIS-sponsored industries were almost entirely import-driven. The "Made in Indonesia" labels on all those Indonesian cars and turbo-props told something less than the truth. As a result, the slide of the rupiah--Indonesia's currency lost some 50 percent of its value against the dollar between 1997-98--caused export earnings to fall by a third in 1999. This, in turn, has left President Abdurrahman Wahid (known to his shrinking circle of friends as "Gus") with a balance of payments problem that has brought about the virtual collapse of Indonesia's banking system. According to the IMF, bailing out failed banks is costing Abdurrahman's government $20 million a day, or 50 percent of GDP. Bar a macroeconomic miracle, public debt will soon be running at 102 percent of GDP.

If all this is likely to give foreign investors pause for thought, though, it's nothing compared with the various new three-letter organizations that have been making hay out of Abdurrahman's economic misfortunes. To placate the IMF, ex-president Habibie caved into human rights demands in August and promised the Indonesian-occupied territory of East Timor its independence. Since then, his successor has had to watch the rise of two other murderous separatist groups--in Aceh and Papua--as well as rising sectarian violence between Christians and Muslims, Dayaks and Madurese.

Unlike Presidents Soeharto and Habibie, Abdurrahman's hands are tied by world opinion. The simple truth is that Indonesia is falling apart, and the clean-handed new president can do nothing to stop it. As Winston Churchill once observed, democracy is the worst political system in the world, apart from all the others. Foreign investors in Indonesia may yet come to feel the same way about the KKN.

Charles Darwent is senior correspondent for the World Economic Forum magazine, WorldLink, based in London.